S.D. A TOP-TIER CITY FOR APARTMENT INVESTING

City moves up on index thanks to climbing rental rates, high demand, construction

According to Meyers Research, San Diego ranks ninth out of 28 markets on its multifamily investment index, garnering a score of 6.4, compared with No. 1-ranked San Francisco at 7.6.

“Portland and San Diego moved into the top tier during the second quarter,” Meyers said, based on low vacancies, high rental rates and construction activity.

Meyers Vice President Tim Sullivan said San Diego still is not building enough apartments to meet current and prospective demand. Incentives have vanished and construction is expanding.

“From the apartment side, I think we’ll see this continue,” Sullivan said. “It’s the little engine that could, the little engine that chugs along.”

Meyers reported the second quarter average rent at $1,510, up 4 percent from a year ago, and a vacancy rate of 5 percent, down from 6 percent over the same period. Of the 28 markets, San Diego’s rent ranked ninth highest:

San Francisco, $2,523

New York-New Jersey, $2,617

Boston, $2,161

San Jose, $2,128

Los Angeles, $1,778

Oakland, 1,722

Orange County, $1,671

Washington, D.C., 1,669

San Diego, $1,510

Baltimore, $1,378

In a separate report, the USC Lusk Center for Real Estate released its Casden Real Estate Economics multifamily forecast, saying San Diego’s vacancy rate had dipped to “an almost absurd 2.3 percent” in the second quarter, based on projects of 15-20 units.

The USC Lusk Center will hold an executive forum on real estate prospects Oct. 9 at the W San Diego Hotel, 421 W. B St. in downtown San Diego. Sullivan will moderate. Information is available online at
lusk.usc.edu.

Rents had increased in all 15 submarkets analyzed and a net 1,490 units had been rented in the quarter ending June 30.

“Overall, these dynamics point to an increase in the demand for multifamily rental housing,” Casden said, “and a tightening rental market.”

The highest rent increase over the last year occurred in the Mira Mesa-Rancho Bernardo area with a 3.5 percent rise to $1,637. The area between Hillcrest and Normal Heights rose the least, up 1.8 percent to $1,081.

Vacancies ranged from 12.7 percent in the area between Clairemont and Mission Valley to 0.9 percent in the Mission Beach-Pacific Beach area.

The Casden forecast for San Diego shows a 2.9 percent rental increase over the next year with El Cajon, Santee, Lakeside, Ocean Beach and Point Loma going up the most.

The overall vacancy rate is projected to decline to 1.9 percent in 2014 and 1.6 percent in 2015. The biggest drops will occur in Hillcrest-Normal Heights, El Cajon, Santee and Lakeside.

“In the end, much will depend upon the employment picture and completions (of new units) over the next two years,” the forecast says. “San Diego’s net addition to its stock has been very small by historical standards, and it is not enough to satisfy demand from household formations.

“On the other hand, affordability is a major issue, and will likely put a lid on the ability of landlords to raise rents, even though vacancies are very low at the moment.”